07 Dec

Kenya Growth Outlook Cut by World Bank Over Credit, Spending

The World Bank lowered its economic growth forecasts for Kenya as delays in spending cuts, weak credit extension and political uncertainty curb expansion prospects.

East Africa’s biggest economy may grow 4.9 percent this year, the slowest pace since 2011, the Washington-based lender said in a report released Thursday. That compares with an April forecast of 5.5 percent, slower than last year’s gross domestic product expansion of 5.8 percent.

A government-imposed cap on commercial lending rates, a drought and two disputed elections have weighed on growth this year in the world’s largest black-tea exporter. The Treasury had to increase its budget-deficit forecast for the year through June and is looking to return to international debt markets for a possible $2 billion Eurobond sale to try to plug the fiscal gap.

“There is a need to consolidate the fiscal stance in order not to jeopardize Kenya’s hard-earned macroeconomic stability,” the World Bank said. Kenya must also “jump-start the recovery of credit growth to the private sector” and should “mitigate weather-related risks by climate-proofing agriculture” to support growth, it said.

The bank reduced the 2018 growth forecast to 5.5 percent from 5.8 percent in April, and cut the estimate for 2019 to 5.9 percent from 6.1 percent, it said.

‘Downside Risks’

Despite the downgraded forecasts, the World Bank’s forecasts may still be too bullish given the series of obstacles the economy faces including the rate caps and new accounting rules for banks, said Jared Osoro, director of research at the Kenya Bankers Association.

“There are a number of downside risks that have been identified, which if taken into consideration will put into question the bullish outlook,” he said.

Public debt has burgeoned to about 57 percent of GDP, from about 45 percent eight years earlier. The Treasury sees the budget deficit at 8.5 percent of GDP by June 30, unchanged from a year earlier. It previously said the gap would narrow to 6.8 percent.

 

To read the full article, click here.

05 Dec

Providing credit in Kenya: What we can learn from this microfinance company

For the vast majority of people living in sub-Saharan Africa, a traditional bank loan is simply not an option.

The region is home to the largest proportion of unbanked people (estimated to be over 60% at last count). But even those who do have access to bank credit face abnormally high loan rates, especially when it comes to the perceived-risky low-income groups.

In recent years there has been a trend of some African countries establishing interest rate ceilings – such as seen recently in Kenya. While the aim is to protect poorer citizens from being charged exorbitant amounts, it has actually further restricted access to credit – as traditional lenders are now imposing even more rigid guidelines for granting loans.

However, this also presents an opportunity for many microfinance institutions, which have popped up over the years to operate in a space deemed too risky for banks. One of these is Musoni Kenya, based in Nairobi. It was launched in 2010 and currently has over 40,000 clients with loans ranging between US$5 and $3,000. The company uses the mobile money platform M-Pesa for loan disbursement and repayments to reduce operational costs, and has a repayment rate of 97%.

At the Mastercard Foundation’s 2017 Symposium on Financial Inclusion, recently held in Accra, How we made it in Africa spoke to the firm’s CEO, Stanley Munyao, about the strategies it employs to reduce the risk of financing bottom-of-the-pyramid consumers.

Partnering to share resources and risk

“One of the biggest challenges for financial institutions, particularly microfinance institutions, is the cost of on-boarding customers and then maintaining those relationships, as well as the lack of proper data to help you make lending decisions,” said Munyao. However, he noted that partnerships offer a solution to these challenges.

The firm is working with various companies that have products and services aimed at low-income consumers. For example, Musoni Kenya has partnered with d.light, an off-grid solar product distributor, to provide a credit service to d.light clients. It has similar partnerships with agricultural companies (selling everything from fertiliser to bee hives) targeting small-scale farmers.

To read the full article, click here. 

29 Sep

Moody’s says South Africa credit rating well placed

South Africa’s credit rating is well placed at the lowest investment grade, but rising foreign ownership of the government’s local-currency bonds is a risk, a senior analyst at Moody’s ratings agency said.

Two of the three large international ratings agencies – S&P Global and Fitch – downgraded South Africa’s foreign-currency rating to speculative grade, or “junk” status, this year after the economy slowed and an abrupt Cabinet reshuffle in March.

Moody’s downgraded South Africa to “Baa3”, one notch above junk, in June and has the continent’s most industrialised economy on a negative outlook.

The ratings downgrades have put pressure on South African asset prices and could increase its borrowing costs.

“We think currently South Africa is well placed at Baa3 with a negative outlook. We had a rating action fairly recently in June,” Zuzana Brixiova, a Moody’s vice president, told Reuters at an investor conference in London.

However, she said that since the June downgrade she had observed a larger-than-expected shortfall in South African government revenues and an increase in foreign financing of government borrowing in rand to around 40 percent.

“To some extent the risk of a ‘sudden stop’ has increased,” she said, referring to the risk that an abrupt change in investor sentiment could result in a sharp reduction in capital flows into South Africa.

Among other concerns, Brixiova cited weak economic growth in South Africa and pressure on institutions, which she said “were being constantly tested”.

She said that whoever the ruling ANC party chooses as its next leader at a major conference in December, Moody’s “would wait and follow what this really means for the policy direction”.

South Africa was earlier dropped from one of the widely used global bond indices, and it risks being excluded from a larger index run by U.S. bank Citi if both Moody’s and S&P cut the country’s local-currency rating to junk.

Read more: Moody’s says South Africa credit rating well placed